The price of oil has recently reached new highs and Britain now has some of the highest taxes on petrol in Europe. Examine the impact on the consumer demand for car, bus, and train travel of a further increase in the costs of motoring. In your essay, you

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Economic 1                                                   student matriculation number: 0509206

Economics Level 1

Q1) The price of oil has recently reached new highs and Britain now has some of the highest taxes on petrol in Europe. Examine the impact on the consumer demand for car, bus, and train travel of a further increase in the costs of motoring. In your essay, you should make use of economic concepts such as demand, price elasticity, and income elasticity.

Matriculation Number: 0509206

                                Tutorial Group: 11

                                  Words count: 1258

                                                     Tutor’s Name:  Hilary Macleod


Introduction:

Why does the price of oil keep escalating over the past century, and recently reach new peaks? In general, the answer to the question is directed to few main contributing factors that are unexpected closure of oil production, on-going Iraq war, destructive natural disaster and further increment of government taxes on petrol. These factors closely play a part in affecting the supply and demand of oil in the commodity market where the consequence of these factors often raised the price of oil. Taking an illustrative example, one can observe clearly that the unexpected closure of a major oil production (Anadarko Petroleum Corporation) in Gulf of Mexico due to the storm of Hurricane Rita (www.oilonline.com, 2005) has significant impact on reducing world’s supply of oil where the reduction in supply ultimately increases the price of oil even when the demand for oil remains unchanged. Economists usually observe this effect as the law of demand (Begg  etl 2003:P27). Undoubtedly, since oil is the main source of energy supply of running motoring in the world, the impact on buyer demand for car, bus and train travel due to further raise in the costs of motoring would be greatly affected. Normally, as observed by most Economists, the impact would be of a reduction in consumer demand for motoring (Lipsey & Chrystal 2004:P44). Hence, this essay aims to deliver the answers to why the reductions in buyer demand for motoring by briefly illustrating few important economic theories such as demand analysis, price elasticity and income elasticity.

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Analysis:

In theory, the total quantity demanded depends on the price of the product being sold, on the prices of all other related products, on the incomes of the consumers buying in that market, and on their tastes (Sloman 2001:P33). In context, this means that the four main factors that are affecting consumer demand for motoring such as car, bus and train travel are the price of motoring, the price of motoring dependable product i.e. oil, the incomes of consumer whom require motoring for transportation in their everyday life, and the tastes of consumer in motoring. Clearly, all these ...

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